In order to comply with regulations, Citigroup Inc (C - Analyst Report) might sell its stake worth almost $1 billion in funds managed by Citi Venture Capital International (CVCI) – a private equity fund. Earlier, in Dec 2013, Citigroup had divested CVCI to New-York based investment firm, Rohatyn Group.
Rohatyn Group is a global emerging markets asset management firm. The firm plans to present the investors in two CVCI funds with the opportunity to sell their holdings to other buyers, before Citigroup sells its remaining stake. The deal for the stake sale is expected to be announced by the first half of 2014.
CVCI is a division of Citigroup’s alternative asset management unit, Citi Capital Advisors. CVCI, which was founded in 2011, operates entirely in emerging markets such as Singapore, Hong Kong, Mumbai, New Delhi, London, New York and Santiago. Presently, CVCI administers five funds as well as other investments, and has roughly $4.3 billion in equity investments and committed capital.
Of late, the private equity business has become less lucrative for banks due to stringent regulations that restrict proprietary trading and investment activities. As per the Volcker Rule, a company is prohibited from investing more than 3% of the private equity funds raised or 3% of the lender’s Tier 1 capital. This provision is expected to adversely affect the future of the bank-owned private-equity units and will make them less attractive.
Over the past few years, several banks have been spinning off their private equity operations to conform to the requirements of the Volcker Rule. Recently, Credit Suisse Group AG (CS) agreed to sell its private equity business to The Blackstone Group L.P. (BX).
In 2011, Bank of America Corp. (BAC - Analyst Report) announced the divesture of BAML Capital Partners, clearly reflecting the impact of the Volcker Rule. JPMorgan Chase & Co. (JPM - Analyst Report) is also set to divest its private equity arm, One Equity Partners and establish it as an independent firm.
For Citigroup, this stake sale will also result in lowering its operating expenses, amid a sluggish macroeconomic environment. Notably, the banking major has been actively divesting its non-core operations to boost profitability.
Citigroup currently carries a Zacks Rank #4 (Sell).